Income and Corporation Taxes Act 1988

349 Payments not out of profits or gains brought into charge to income tax, and annual interest. U.K.

(1) M1 Where—

(a) any annuity or other annual payment [F1 to which this paragraph applies]; or

(b) any royalty or other sum paid in respect of the user of a patent;F2 . . .

(c) F2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

is not payable or not wholly payable out of profits or gains brought into charge to income tax, the person by or through whom any payment thereof is made shall, on making the payment, deduct out of it a sum representing the amount of income tax thereon .

[F3 (1A) Paragraph (a) of subsection (1) applies to any annuity or other annual payment, not being interest—

(a) which is charged with tax under Case III of Schedule D,

[F4 (aa) which—

(i) is charged with tax under Chapter 7 of Part 4 of ITTOIA 2005 (purchased life annuity payments), Chapter 10 of that Part (distributions from unauthorised unit trusts), section 579 of that Act (royalties etc. from intellectual property), Chapter 4 of Part 5 of that Act (certain telecommunication rights: non-trading income) or Chapter 7 of Part 5 of that Act (annual payments not otherwise charged), and

(ii) is not relevant foreign income,]

(b) which is charged with tax under Part 9 of ITEPA 2003 (pension income) because section [F5 579A of that Act applies to it because it is an annuity under an annuity contract that is a registered pension scheme,] or

(c) which arises from a source in the United Kingdom and is charged with tax under Part 9 of ITEPA 2003 because section 609, 610 or 611 of that Act applies to it.]

[F6 (1B)] [F7 Subsection (1)] does not apply to any payment to which section 687 applies F8 . . . [F9 or to any payment which is a qualifying donation (within the meaning of section 339) or a qualifying donation for the purposes of section 25 of the M2 Finance Act 1990].

(2) M3 Subject to subsection (3) below and to any other provision to the contrary in the Income Tax Acts, where any yearly interest of money [F10 which falls within Chapter 2 of Part 4 of ITTOIA 2005 (interest) (excluding anything specially exempted from income tax and discounts treated as interest by section 381 of that Act) or which is chargeable to corporation] tax under Case III of Schedule D [F11 (as that Schedule has effect apart from the modification made for the purposes of corporation tax by section 18(3A))] is paid—

(a) otherwise than in a fiduciary or representative capacity, by a company [F12 (other than a building society)] or local authority; or

(b) by or on behalf of a partnership of which a company is a member; or

(c) by any person to another person whose usual place of abode is outside the United Kingdom;

the person by or through whom the payment is made shall, on making the payment, deduct out of it a sum representing the amount of income tax thereon for the year in which the payment is made.

(3) Subsection (2) above does not apply—

[F13 (za) to interest chargeable to income tax as relevant foreign income; or]

(a) to interest payable in the United Kingdom on an advance from a bank carrying on a bona fide banking business [F14 on an advance from a bank, if at the time when the interest is paid the person beneficially entitled to the interest is within the charge to corporation tax as respects the interest]; or

(b) to interest paid by [F15 a bank in the ordinary course of its] business; or

[F16 (ba) to interest paid on deposits with the National Savings Bank; or]

(c) to any [F17 payment of interest on a quoted Eurobond]; or

(d) to any payment to which section 369or 479(1) F18 applies; [F19 or

F20 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F21 (e) F22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

(f) to any payment in respect of which a liability to deduct income tax is imposed by section 480A(1); or

(g) to any payment in respect of which a liability to deduct income tax would be imposed by section 480A(1) if conditions prescribed by regulations under section 480B were not fulfilled; [F23 or]]

[F24 (h) to any payment in respect of which a liability to deduct income tax would, but for section 481(5)(k), be imposed by section 480A(1);][F25 or

(i) in the case of a person who is authorised for the purposes of the Financial Services and Markets Act 2000 and whose business consists wholly or mainly of dealing in financial instruments as principal, to interest paid by that person in the ordinary course of his business;][F26 or

(j) to interest paid by a recognised clearing house or recognised investment exchange carrying on business as provider of a central counterparty clearing service, in the ordinary course of that business, on margin or other collateral deposited with it by users of the service; or

(k) to interest treated by virtue of section 730A(2)(a) or (b) (repos) as paid by a recognised clearing house or recognised investment exchange in respect of contracts made by it as provider of a central counterparty clearing service.]

F27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F28 (3AA) In this section “bank” has the meaning given by section 840A.]

[F29 (3AB) An order under section 840A(1)(d) designating an organisation as a bank for the purposes of paragraph (a) of subsection (3) above may provide that that paragraph shall apply to the organisation as if the words from “if” to the end were omitted.]

[F30 (3A) Subject to subsection (3B) below and to any other provision to the contrary in the Income Tax Acts, where—

(a) any dividend or interest is paid in respect of a security issued by a building society other than a qualifying certificate of deposit [F31 and other than a qualifying deposit right]], and

(b) the security was [F32 listed], or capable of being [F32 listed], on a recognised stock exchange at the time the dividend or interest became payable,

the person by or through whom the payment is made shall, on making the payment, deduct out of it a sum representing the amount of income tax thereon for the year in which the payment is made.

(3B) Subsection (3A) above does not apply to any [F17 payment of interest on a quoted Eurobond].

[F33 (3C) Subject to any provision to the contrary in the Income Tax Acts, where any UK public revenue dividend is paid, the person by or through whom the payment is made shall, on making the payment, deduct out of it a sum representing the amount of income tax on it for the year in which the payment is made.]

[F34 F35 (4) In [F36 this section]] —

• [F37 “certificate of deposit” means a document falling within the definition of that expression in section 56(5) above or section 552(2) of ITTOIA 2005;]

• “ dividend” has the same meaning as in section 477A,

• [F36 “ qualifying certificate of deposit” means a certificate of deposit F38 . . . under which [F39 , or uncertificated eligible debt security units under which]—

  (a)

  the amount payable by the issuing society, exclusive of interest, is not less than £50,000 (or, for a deposit denominated in foreign currency, not less than the equivalent of £50,000 at the time when the deposit is made), and

  (b)

  the obligation of the society to pay that amount arises after a period of not more than five years beginning with the date on which the deposit is made; and

• [F40 “qualifying deposit right” means a right to receive an amount (with or without interest) in pursuance of a deposit of money, where—

  (a)

  the right subsists under an arrangement falling within section 56A[F41 above or is an uncertificated right, as defined in section 552(2) of ITTOIA 2005],

  (b)

  no certificate of deposit F38 . . . has been issued [F42 , and no uncertificated eligible debt security units have been issued,] in respect of the right at the time the dividend or interest concerned is paid, and

  (c)

  the conditions set out in paragraphs (a) and (b) in the definition of “qualifying certificate of deposit” apply; and]

• [F43 “quoted Eurobond” means any security that—

  (i)

  is issued by a company,

  (ii)

  is listed on a recognised stock exchange, and

  (iii)

  carries a right to interest;]

• “security” includes share;]

• [F44 “uncertificated eligible debt security units” has the same meaning as in section 552(2) of ITTOIA 2005;]

• [F45 “UK public revenue dividend” means any income from securities which is paid out of the public revenue of the United Kingdom or Northern Ireland, but does not include interest on local authority stock.]

[F34 (5) For the purposes of subsection (3)(i) above, a financial instrument includes—

(a) any money,

(b) any shares or securities,

(c) an option, future or contract for differences if, but only if, its underlying subject-matter is (or is primarily) a financial instrument, or financial instruments, and

(d) an instrument the underlying subject-matter of which is (or is primarily) creditworthiness.

(6) [F46 “central counterparty clearing service” means the service provided by a clearing house or investment exchange to the parties to a transaction where there are contracts between each of the parties and the clearing house or investment exchange (in place of, or as an alternative to, a contract directly between the parties);]

[F47 “recognised clearing house” and “recognised investment exchange” have the same meaning as in the Financial Services and Markets Act 2000 (see section 285 of that Act);]

for the purposes of subsection (5) above, the “underlying” subject-matter of an instrument the effect of which depends on an index or factor is the matter by reference to which the index or factor is determined.]

[F48 (7) This section is subject to section 101 of the Finance Act 2004 (payment of royalties without deduction at source).]

Textual Amendments

F1 Words in s. 349(1)(a) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 51(2) (with Sch. 7)

F2 S. 349(1)(c) and preceding word repealed (with effect in accordance with Sch. 18 Pt. 6(2) Note of the repealing Act) by Finance Act 1997 (c. 16), Sch. 18 Pt. 6(2)

F3 S. 349(1A) inserted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 51(3) (with Sch. 7)

F4 S. 349(1A)(aa) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(2) (with Sch. 2)

F5 Words in s. 349(1A)(b) substituted (6.4.2006) by Finance Act 2004 (c. 12), s. 284(1), Sch. 35 para. 15 (with Sch. 36)

F6 Words in s. 349(1) renumbered as s. 349(1B) (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by virtue of Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 51(4) (with Sch. 7)

F7 Words in s. 349(1B) substituted (6.4.2003 with effect in accordance with s. 723(1) of the amending Act) by Income Tax (Earnings and Pensions) Act 2003 (c. 1), Sch. 6 para. 51(5) (with Sch. 7)

F8 Words in s. 349(1) repealed (with effect in accordance with s. 111(6)(b) of the repealing Act) by Finance Act 2000 (c. 17), Sch. 40 Pt. 2(17), Note 1

F9 Words in s. 349(1) inserted (with effect in accordance with s. 41(9) of the amending Act) by Finance Act 2000 (c. 17), s. 41(4)

F10 Words in s. 349(2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(3) (with Sch. 2)

F11 Words in s. 349 inserted (with effect in accordance with s. 105(1) of the amending Act) by Finance Act 1996 (c. 8), Sch. 14 para. 18 (with Sch. 15)

F12 Words in s. 349(2)(a) inserted (25.7.1991) by Finance Act 1991 (c. 31), s. 52(1), Sch. 11 para. 1(2)

F13 S. 349(3)(za) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(4) (with Sch. 2)

F14 Words in s. 349(3)(a) substituted (with application in accordance with Sch. 37 para. 8(1)-(6) of the amending Act) by Finance Act 1996 (c. 8), Sch. 37 para. 3(a)

F15 Words in s. 349(3)(b) substituted (with application in accordance with Sch. 37 para. 8(7)(8) of the amending Act) by Finance Act 1996 (c. 8), Sch. 37 para. 3(b)

F16 S. 349(3)(ba) inserted (with application in accordance with s. 78(2) of the amending Act) by Finance Act 1997 (c. 16), s. 78(1)

F17 Words in ss. 349(3)(c)(3B) substituted (with effect in accordance with s. 111(6)(b) of the amending Act) by Finance Act 2000 (c. 17), s. 111(2)(a)

F18 Words

“or 479(1)”

repealed by 1990 s.132and Sch.19 Part.IV.

F19 S. 349(3)(e)-(g) and the word "or" inserted (26.7.1990) by Finance Act 1990 (c. 29), s. 30, Sch. 5 para. 10(2)(4) (for payments made on or after 6th April 1991).

F20 S. 349(3)(e) (which was inserted 26.7.1990 by Finance Act 1990 (c. 29), s. 30, Sch. 5 para. 10(2)(4)) repealed (25.7.1991) by Finance Act 1991 (c. 31, SIF 63:1), ss. 52(1), 123, Sch. 11 para. 1(3), Sch. 19 Pt. V

F21 S. 349(3)(e) inserted (29.4.1996) by Finance Act 1996 (c. 8), Sch. 29 para. 5(2)

F22 S. 349(3)(e) repealed (with effect in accordance with s. 111(6)(b) of the repealing Act) by Finance Act 2000 (c. 17), Sch. 40 Pt. 2(17), Note 1

F23 Word in s. 349(3), at the end of para. (g), inserted (27.7.1993 ) by 1993 c. 34, s.59

F24 S. 349(3)(h) inserted (27.7.1993) by 1993 c. 34, s. 59

F25 S. 349(3)(i) and preceding word inserted (with application in accordance with s. 95(4) of the amending Act) by Finance Act 2002 (c. 23), s. 95(2)

F26 S. 349(3)(j)(k) and preceding word inserted (with effect in accordance with s. 202(4) of the amending Act) by Finance Act 2003 (c. 14), s. 202(2)

F27 Words repealed by 1988(F) s.148and Sch.14 Part IVfor payments made on or after 6April 1989.

F28 S. 349(3AA) inserted (with application in accordance with Sch. 37 para. 8 of the amending Act) by Finance Act 1996 (c. 8), Sch. 37 para. 2(1)(2)(b)

F29 S. 349(3AB) inserted (29.4.1996) by Finance Act 1996 (c. 8), Sch. 37 para. 4

F30 S. 349(3A)(3B) inserted (25.7.1991) by Finance Act 1991 (c. 31), s. 52(1), Sch. 11 para. 1(4).

F31 Words in s. 349(3A)(a) inserted (with application in relation to arrangements made after 16.7.1992) by Finance (No. 2) Act 1992 (c. 48), s. 34, Sch. 8 paras. 2(2), 6.

F32 Word in s. 349(3A)(b) substituted (with effect in accordance with Sch. 38 para. 6(7) of the amending Act) by Finance Act 1996 (c. 8), Sch. 38 para. 6(1)(2)(e)

F33 S. 349(3C) inserted (with application in accordance with s. 112(5) of the amending Act) by Finance Act 2000 (c. 17), s. 112(2)

F34 S. 349(5)(6) inserted (with application in accordance with s. 95(4) of the amending Act) by Finance Act 2002 (c. 23) s. 95(3)

F35 S. 349(4) inserted (26.7.1990) by Finance Act 1990 (c. 29), s. 30, Sch. 5 para. 10(3)(4) (for payments made on or after 6th April 1991).

F36 S. 349(4): definitions of "qualifying certificate of deposit" and "security" substituted for words in s. 349(4) (25.7.1991) by Finance Act 1991 (c. 31), s. 52(1), Sch. 11 para. 1(5)

F37 S. 349(4): definition of "certificate of deposit" inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(5)(a) (with Sch. 2)

F38 S. 349(4): words in definitions of "qualifying certificate of deposit" and "qualifying deposit right" repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(5)(b)(i)(c)(ii), Sch. 3 (with Sch. 2)

F39 S. 349(4): words in definition of "qualifying certificate of deposit" inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(5)(b)(ii) (with Sch. 2)

F40 S. 349(4): definition of "qualifying deposit right" inserted (with application in relation to arrangements made after 16.7.1992) by Finance (No. 2) Act 1992 (c. 48), s. 34, Sch. 8 paras. 2(3), 6

F41 S. 349(4): words in definition of "qualifying deposit right" inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(5)(c)(i) (with Sch. 2)

F42 S. 349(4): words in definition of "qualifying deposit right" inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(5)(c)(ii) (with Sch. 2)

F43 S. 349(4): definition of "quoted Eurobond" inserted (with effect in accordance with s. 111(6)(b) of the amending Act) by Finance Act 2000 (c. 17), s. 111(2)(b)

F44 S. 349(4): definition of "uncertificated eligible debt security units" inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(5)(a) (with Sch. 2)

F45 S. 349(4): definition of "UK public revenue dividend" inserted (with application in accordance with s. 112(5) of the amending Act) by Finance Act 2000 (c. 17), s. 112(3)

F46 S. 349(6): definition of "central counterparty clearing service" inserted (with effect in accordance with s. 202(4) of the amending Act) by Finance Act 2003 (c. 14), s. 202(3)

F47 S. 349(6): definitions of "recognised clearing house" and "recognised investment exchange" inserted (with effect in accordance with s. 202(4) of the amending Act) by Finance Act 2003 (c. 14), s. 202(3)

F48 S. 349(7) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 148(6) (with Sch. 2)

Modifications etc. (not altering text)

C1 S. 349 excluded (3.5.1994) by Finance Act 1994 (c. 9), s. 174

C2 S. 349 excluded (with effect in accordance with s. 83(3) of the excluding Act) by Finance Act 2002 (c. 23), Sch. 26 para. 51 (with Sch. 28)

C3 S. 349 applied (with effect in accordance with s. 56 of the affecting Act) by Finance Act 2005 (c. 7), Sch. 2 para. 3

C4 See S.I. 1986 No.482 (in Part III Vol.5) regn. 2(2)—application of s.349(1)for the purposes of S.I. 1986 No.482 (Building Society Regulations).

C5 S. 349(1) modified by The Income Tax (Manufactured Overseas Dividends) Regulations 1993 (S.I. 1993/2004), reg. 5(1A) (as inserted (1.11.2003) by The Income Tax (Manufactured Overseas Dividends) (Amendment) Regulations 2003 (S.I. 2003/2582), reg. 6(3))

C6 S. 349(1) excluded (retrospective to 22.10.2004) by Finance Act 2006 (c. 25), ss. 65(3), 66(6)

C7 See S.I. 1986 No.482 (in Part III Vol.5) regn. 2(2)—application of s.349(1)for the purposes of S.I. 1986 No.482 (Building Society Regulations).

C8 S. 349(3)(a) applied (with modifications) (29.4.1996) by The European Investment Bank (Designated International Organisation) Order 1996 (S.I. 1996/1179), art. 4

C9 See—1970(M) s.106—avoidance of agreements for payment without deduction of tax, etc.1989 s.94and Sch.11 para.18—deep gain securities.1989 s.116—certain interest on Eurobonds to Netherlands Antilles subsidiaries made on or after 1April 1989.

C10 S. 349(3)(b)(3AA) modified (29.4.1996) by Finance Act 1996 (c. 8), Sch. 37 para. 8(8)

Marginal Citations

M1 Source-1970 s.53(1); 1973 s.17(1); 1971 Sch.6 21

M2 1990 c. 29.

M3 Source-1970 s.54(1), (2); 1971 Sch.6 22; 1982 s.26(1); 1984 ss.27(2), 35(1); 1970 s.65(2)